Question

In: Finance

An insurance company is offering an annuity product that costs 30,000 today and entitles you to...

An insurance company is offering an annuity product that costs 30,000 today and entitles you to receive ten annual payments of 3750 from the insurance company. what interest rate is embedded in the pricing of this annuity product?

a- 4.28%

b- 3.18%

c-4.56%

d 3.86%

Solutions

Expert Solution

Cost of Annuity = 30,000
Annual Payment = 3,750
Number of Payments = 10

Let annual interest rate be i%

30,000 = 3,750 * PVIFA(i%, 10)

Using financial calculator:
N = 10
PV = -30000
PMT = 3750
FV = 0

I = 4.28%

Annual interest rate = 4.28%

So, interest rate of 4.28% is embedded in the pricing of this annuity product.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

An insurance company is offering an annuity product that costs$30,000 today and entitles you to...
An insurance company is offering an annuity product that costs $30,000 today and entitles you to receive ten annual payments of $3,750 from the insurance company. What interest rate is embedded in the pricing of this annuity product?
Your insurance agent is trying to sell you an annuity that costs $45,000 today. By buying...
Your insurance agent is trying to sell you an annuity that costs $45,000 today. By buying this annuity, your agent promises that you will receive payments of $380 per month for 15 years. What is the rate of return expressed as an APR on this investment? (a) 6.87% (b) 5.01% (c) 5.76% (d) 6.01% (e) 5.55%
Your insurance agent is trying to sell you an annuity that costs $60,000 today. By buying...
Your insurance agent is trying to sell you an annuity that costs $60,000 today. By buying this annuity, your agent promises that you will receive payments of $315 per month for 30 years. What is the rate of return expressed as an APR on this investment? Multiple Choice 4.44% 4.81% 4.00% 5.49% 4.72%
Your insurance agent is trying to sell you an annuity that costs $60,000 today. By buying...
Your insurance agent is trying to sell you an annuity that costs $60,000 today. By buying this annuity, your agent promises that you will receive payments of $475 per month for 15 years. What is the rate of return expressed as an APR on this investment?
You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year at...
You are considering an annuity which costs $100,000 today. The annuity pays $6,000 a year at the Beginning of each year. The rate of return is 4.5 percent. How many years of annuity payments will you receive? A. 24.96 years B. 29.48 years C. 28.73 years D. 33.08 years E. 38.00 years
An insurance company is trying to sell you a retirement annuity. The annuity will give you...
An insurance company is trying to sell you a retirement annuity. The annuity will give you 20 payments with the first payment in 12 years when you retire. The insurance firm is asking you to pay $50,000 today. If this is a fair deal, what must the payment amount be (to the dollar) if the interest rate is 8 percent? please show in excel
You are an insurance company and have sold an annuity to a customer. The annuity pays...
You are an insurance company and have sold an annuity to a customer. The annuity pays 240 monthly payments (the same each month) starting 12 months from today. The monthly paymenst are $500 per month. If your firm earns 5.00% APR (compounded monthly), on its investments, how much does it have to invest today to just cover the cost of the annuity?
My annuity will pay me $4200 a year for 10 years in exchange for $30,000 today....
My annuity will pay me $4200 a year for 10 years in exchange for $30,000 today. What interest rate will you earn on this annuity?
4. What is the Profitability Index of a project that costs $30,000 today and is expected...
4. What is the Profitability Index of a project that costs $30,000 today and is expected to generate annual cash inflows of $3,000 for the following 12 years. Cost of capital is 6%. Round to two decimal places.
An insurance company has three types of annuity products: indexed annuity, fixed annuity, and variable annuity....
An insurance company has three types of annuity products: indexed annuity, fixed annuity, and variable annuity. You are given: None of the customers have both fixed annuity and variable annuity. 40% of the customers with fixed annuity also have indexed annuity. Half of the customers with two annuity products have variable annuity. 60% of the customers have indexed annuity. The number of customers who have only the variable annuity is the same as the number of customers who have two...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT